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HDFC Arbitrage Fund

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HDFC Arbitrage Fund With the volatility in the equity market, the focus will be back on arbitrage funds

HDFC Arbitrage Fund is a fund that uses the arbitrage difference between equity spot and equity derivative to achieve its investment objective. It's a lowrisk open-ended equity mutual fund, operational since October 2007. The fund invests in equity, equity derivatives and in debt instruments.


INVESTMENT OBJECTIVE: The fund aims to generate income through arbitrage opportunities between the spot and derivative market, arbitrage opportunities within the derivative segment, and by deployment of surplus cash in debt securities and money market instruments.


ASSET ALLOCATION & INVESTMENT STRATEGY: The fund has a mandate to invest 65 to 90 per cent of the assets in equity and equity related instruments and in derivative including index futures, stock futures, index options and stock options. The fund has a mandate to invest 10 to 35 per cent in debt securities and money mar ket instruments and fixed income derivative. The fund has a mandate to raise allocation in debt securities and money market instruments and fixed income derivative to 35 to 100 per cent when markets do not have arbitrage opportunity.


PLANS & CHARGES: The scheme offers retail and direct plan, each offering two options ­ growth and quarterly dividend option ­ with payout and reinvestment facility. There is no entry load. The exit load in respect of each purchase /switch-in of units is 0.50 per cent if units are redeemed / switched-out within six months from the date of allotment. No exit load is payable if units are redeemed / switched-out after six months from the date of allotment.


BENCHMARK: The scheme's performance will be benchmarked against Crisil Liquid Fund Index.


HDFC Arbitrage Fund has slipped from being a top performer to a poor performer over the past two years. But with the volatility in the equity market, the focus will be back on arbitrage funds, as the ability of these funds to generate higher returns depends on the volatility in equity markets ­ the higher the better. During the volatile 2006-2008 period, arbitrage funds gave healthy post-tax returns of 8-9 per cent.

The fund has underperformed with a one-year return of 7.66 per cent as compared to similar funds from other domestic fund houses, which have given return in the range of 8 per cent to 9.85 per cent. Still the fund's return are higher than the category average across one month, three month, six month, one year, two year, three year and five year. At present, fund's net asset value is at a 52-week high of 14.978 as on June 14.

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